Markets Insight
  •  4/27/2021

Exploring Structured Annuities

By SIMON

Learn how this fast-growing segment delivers market-driven returns with only a portion of the downside risk.

Annuities in Retirement Planning
The annuity market is a long-established one, with countless strategies that may help you address saving needs and income challenges in retirement planning. One challenge faced by many retirees and pre-retirees, regardless of market conditions is:

How do you get returns necessary to grow your retirement assets while reducing exposure to significant market loss?

Structured annuities may help investors face that challenge. With increasing variety and flexibility in the marketplace, structured annuities can help strike a personalized balance between risk and reward—a balance that you select based on your evolving needs and objectives.

What Is a Structured Annuity?
A structured annuity is a long-term, tax-deferred financial vehicle used primarily in retirement planning.  Its design gives you the opportunity to earn interest based on the market growth of an index or indices that you select.

Structured annuities offer multiple different crediting strategies that let you choose the balance between growth potential and downside protection. A qualified financial professional can help you narrow these choices down and select a strategy that will help you reach your individual retirement and legacy goals.

As each crediting period expires, you have the ability to reallocate to a new type of crediting strategy for a new term. This flexibility allows you to meet changing financial objectives over the life of the structured annuity.

Structured Annuities can also be referred to as registered index-linked annuities, variable-indexed annuities, indexed-variable annuities, or buffered annuities.

Finding the Balance
In a marketplace known for its diversity, it’s helpful to visualize structured annuities amongst other deferred annuity offerings in a risk-return context.

How Structured Annuities Can Work for You
In selecting a crediting strategy, you should understand that the level of protection you choose directly correlates to the level of upside potential available.

In order to be assured you will receive the stated level of protection, you must hold the annuity contract until the end of its crediting period.

The above graphic is for illustrative purposes, does not represent all of the features available in the structured annuity market, and may include some terms and/or features that are not available in all states.

Crediting Strategy Illustration
Let’s see an illustration of how a crediting strategy works.

Assumptions: You make an initial investment of $100,000 in a structured annuity with the following terms:

  • Crediting Period: The duration of time used to calculate gains or losses on the reference index.
  • Cap Rate: A provision in a crediting strategy where a contract owner has the opportunity to participate one-to-one in the gains of the selected reference index up to a defined cap rate, over the specified crediting period.
  • Buffer: A type of downside protection that absorbs a fixed percentage of the selected reference index’s losses over the specified crediting period and, after that, losses are one-to-one with the market.

This example shows a 10% buffer, where a loss would be incurred only if the index falls more than 10% over the crediting period. If the index falls more than 10%, only losses that exceed 10% would be experienced.

Potential Investors
Structured annuities may be appropriate if you are in, or approaching, retirement and seeking protection against unexpected market downturns that could negatively affect your financial plan. However, withdrawals or surrender charges during a specified period may be subject to fees and/or penalties and potential investors must be comfortable with putting principal at risk and making a long-term investment.

Key Benefits

  • Potential for Market Growth: Participate in market upside, subject to the limitations of the crediting strategy.
  • Risk Management: Choose a level of partial protection on the downside.
  • Tax Advantages: Interest credited grows tax deferred until your earnings are distributed

Key Considerations

  • Structured annuities are complex, long-term investment vehicles and are subject to risk, including the potential loss of principal.
  • From term to term, available reference indices, renewal rates for upside features, protection options, and term lengths are all subject to change, at the carrier’s discretion.
  • Early withdrawals or surrender during the surrender charge period may trigger surrender charges, fees, or tax penalties, and may be subject to negative adjustments, which could be substantial. Early withdrawals may also be subject to a market valuation adjustment, or MVA, which can reduce the account value or the actual withdrawal amount. For this reason, an investor should be prepared and able to hold an annuity through the full length of the surrender charge period which is typically between 5-10 years.
  • Performance, payments, and guarantees are backed by the strength and soundness of the issuing insurance company and are subject to their claims-paying ability.

In order to find a structured annuity solution that can work for you, reach out to your financial professional and carefully review the structured annuity’s offering document, disclosure document, and buyer’s guide for important contract details, including fees and charges.

Want to learn more about managing market risk with confidence? If you’re a financial professional, contact us for a demo and if you’re an investor, ask your financial professional about SIMON.

You can also learn more about annuities and other risk managed solutions with articles and videos available on simon.io/engage.

©2021 SIMON Markets LLC. All Rights Reserved. | 2021.04 | Updated 2021.12

This is not intended to be an offer or solicitation to purchase or sell any security or to employ a specific investment strategy. This material is intended as general background information, for educational purposes only, and should not be used as a primary basis to decide to purchase an annuity contract. This material is being provided for informational purposes only and does not consider any specific investment objectives or financial situation of any investor. The information is not intended as investment advice and is not a recommendation about managing or investing retirement savings. Actual structured annuity contracts may differ materially from the general overview provided. The crediting strategy illustration is hypothetical in nature, does not reflect actual investment results, and does not guarantee future results.

Prior to making any decision with respect to an annuity contract, purchasers must review, as applicable, the offering document, the disclosure document, and the Buyer’s Guide which contain detailed and additional information about the annuity. Any annuity contract is subject in its entirety is to the terms and conditions imposed by the Carrier under the contract. Withdrawals or surrenders may be subject to surrender charges, and/or market value adjustments, which can reduce your contract value or the actual withdrawal amount you receive. Withdrawals and distributions of taxable amounts are subject to ordinary income tax and, if made prior to age 59½, may be subject to an additional 10% federal income tax penalty. Structured Annuities are not FDIC-insured. All references to guarantees arising under an annuity contract are subject to the financial strength and claims-paying ability of Carrier. This does not constitute legal, accounting or tax advice, and the recipient should consult with his or her legal, accounting or tax adviser regarding the instruments described in this material.

Securities products and services offered by SIMON Markets LLC, a broker-dealer registered with the U.S. Securities and Exchange Commission, a member of FINRA / SIPC. Annuities and insurance services provided by SIMON Annuities and Insurance Services LLC. Please visit www.simon.io for complete disclosures, including terms of use and privacy policy.

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